Housing Choices and Labor Income Risk
Sveriges Riksbank Working Paper Series No. 272
79 Pages Posted: 18 Dec 2013
Date Written: August 1, 2013
I show that individuals whose unemployment risk tends to increase more when local home prices fall optimally invest less in owner-occupied housing. Using a unique, Swedish register-based database, I find that a one standard deviation increase in the covariance between individually estimated unemployment risks and local home prices implies an average increase in the value of households' investments in owner-occupied housing of USD 13,300. Further, I find, in line with the predictions of my theoretical model, that same-industry couples rent more often, but, conditional on ownership, invest USD 9,200 more on average in single-family homes than different-industry couples.
Keywords: homeownership, housing demand, unemployment, house price risk
JEL Classification: D12, D14, R21
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